Why BT Group plc’s Investment Plans Are Set To Supercharge Growth

Royston Wild evaluates what BT Group plc’s (LON: BT-A) capex plans are likely to mean for future earnings.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I believe BT Group‘s (LSE: BT-A) (NYSE: BT.US) expenditure plans should deliver stunning long-term earnings expansion.

Huge investment programme paying off

BT Group has been chucking vast sums of money at its broadband operations in order to maintain its crown at the top of the UK internet space. The company’s multi-year drive to lay fibre across the country now connects 18 million homes and businesses, and this figure is set to march higher as its investment programme continues.

But equally interesting will be how BT chooses to continue taking on the might of British Sky Broadcasting, after the businessBT famously shelled out an eye-watering £897m last November for exclusive rights to show UEFA Champions League and Europa League soccer from 2015-2018.

The move to secure Europe’s premier international competition not only stole one of Sky’s crown jewels, but also significantly dented the football portfolio of ITV and Disney’s ESPN which have a monopoly on Europe’s second-string tournament.

Seemingly BT’s next natural target will be to expand its broadcast rights for the FA Premier League, the next auction for which is due in 2015. BT currently has permission to show 38 live games per season, but will be looking to significantly build on this number in the next round of bidding. But Sky is unlikely to be caught with its trousers down for a second time, and BT may be forced to fork out further monstrous sums to build its exposure to top-flight domestic football.  

At the moment BT’s aggressive investment strategy is paying dividends. The firm’s BT Sport channels currently boasts more than 2.5 million customers, and the decision to offer these channels free to all broadband packages is also boosting new internet connections — indeed, the firm reported another record quarter of new fibre uptake during September-December.

Solid earnings growth on the horizon

BT Group has punched solid earnings growth in each of the past four years, with expansion running at a compound annual growth rate of 15.4% during the period. City analysts expect the heavy cost of its running ambitious drive to result in a fractional earnings uptick for the year concluding March 2014, however, results for which are due on Thursday, May 8.

Still, BT is expected to get back on track from this year onwards, with earnings increases of 9% and 8% chalked in for 2015 and 2016 correspondingly.

Such projections leave the company dealing on a P/E multiple of 12.8 for this year and 11.8 for 2016, representing a mere snip compared with a forward average of 21.8 for the entire fixed line telecommunications sector.

In my opinion BT has shown that it has the firepower, as well as the know-how, to cement its place as Britain’s premier triple-services entertainment provider. I fully expect the firm’s formidable cash pile to continue driving investment — and with it earnings — skywards in coming years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in Sky.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »